Uber buys Careem for $3.1 billion to expand into Middle East

/ CBS/AP

Uber said it has acquired Mideast competitor Careem for $3.1 billion, giving the San Francisco-based firm a leading edge in a region with a large young, tech-savvy population.

Uber on Tuesday said the purchase consists of $1.7 billion in convertible notes and $1.4 billion in cash. It marks the largest technology transaction in the Middle East — outside of Israel — and propels the Dubai-based firm to legendary status among the region's budding tech startup scene.

Careem will maintain its brand and won't change its app, at least for now. It will operate as a wholly owned subsidiary of Uber and be led by its original founders. The deal is expected to close in the first quarter of 2020 and is subject to regulatory approval in several countries. Careem's major markets include Egypt, Jordan, Pakistan, Saudi Arabia and the United Arab Emirates, Uber said.

Today, we start Chapter 2 of our story. Careem is joining forces with Uber to better serve the region

We will operate independently, so the app, services and brand you love will continue to be available as usual.

For more details, visit https://t.co/1eGk5u6d1w pic.twitter.com/xn53Q9iyLI

— Careem (@careem) March 26, 2019

The acquisition comes as Uber plans for an initial public stock offering this spring, even as its losses have widened. Last fall, bankers were valuing Uber at $120 billion, thanks to its growing customer base. Even so, Uber is facing increased competition from rivals such as Lyft, which has filed for an IPO, as well as criticism from policy makers that it adds to cities' traffic congestion.

Uber CEO Dara Khosrowshahi said the acquisition of Careem marks "an important moment for Uber as we continue to expand the strength of our platform around the world."

Uber said Careem co-founder and CEO Mudassir Sheikha will lead the Careem unit, which will report to a separate board including three board members from Uber and two from Careem.

New ideas

In a memo to staff, Khosrowshahi said that keeping the Careem app intact allows Uber to try out new ideas across both brands. Over time, the firms will integrate part of their networks, he said.

"We decided that this framework has the advantage of letting us build new products and try new ideas across not one, but two, strong brands, with strong operators within each," he wrote.

Uber's stiffest competitor in the Middle East had been Careem, which launched in 2012 — three years before Uber entered the local market.

A Saudi woman shows the Careem app on her mobile phone in Riyadh, Saudi Arabia, January 2, 2017. Picture taken January 2, 2017. Faisal Al Nasser / REUTERS

Careem, founded by two former management consultants at McKinsey & Co., is popular in countries like Egypt and Pakistan where people overwhelmingly use cash over credit cards.

Careem's app gave riders localized options, like paying by cash rather than Uber's initial credit card-only system. Last year, Careem was said to be exploring a bus service for Egypt's lower-income riders.

Careem's $2 billion valuation

Despite Uber's regional launch in 2015 and services like Uber Eats that delivers food, Careem maintained the lead operating in more than 100 cities across 15 countries. The company was valued at about $1 billion in a 2016 funding round and an estimated $2 billion last year.

Dubai now has three of the region's most high-profile start-up success stories. In 2017, Amazon purchased Mideast online retailer Souq.com for reportedly close to $700 million. A decade ago, Yahoo acquired Dubai-based Arab-language internet site Maktoob.

Careem's CEO Mudassir Sheikha described the acquisition as a "milestone" for the company and for budding entrepreneurs in the region. Under the deal, he will lead Careem's business under Uber and report to a board comprised of three Uber representatives and two from Careem.

"This has put our region on the map and has shown it's a great place to build some of the best technology in the world," Sheikha said in a statement to Careem customers.

Careem investors

Saudi Technology Ventures, one of Careem's investors, said the local ride-hailing firm succeeded by using its deep local knowledge and expertise to cater to the needs of the Middle East's young, techy-savvy population.

Other Careem investors include Kingdom Holding, chaired by Saudi Prince Alwaleed bin Talal, German car manufacturer Daimler AG, Japanese tech firm Rakuten and Mideast venture capital firm Wamda.

Meanwhile, Uber's investors include Saudi Arabia's sovereign wealth fund, which has a $3.5 billion stake in the ride-sharing app.

First published on March 26, 2019 / 8:21 AM

© 2019 CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.

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